Shadrack Muyesu
Most recently, the standout event in the never ending circus that is Kenya’s politics has been the signing into law of the Statute Law (Miscellaneous Amendment) Act of 2015.
The new law has stirred a sandstorm. On one hand, government’s political battalions have hailed the immaculateness of the new law; on the other, the major players in the telecoms sector are crying foul. Those who are for the law argue that the new laws open new, previously unfathomable frontiers with regard to the exercise of oversight and management over a previously chaotic regime. The sceptics, on the other hand, argue that not only do the laws fail the constitutionality test, they are also inherently irrational and ambiguous. Most curiously, some also observe mala fides on the part of the government – presumably, the chief architect of these laws.
However, before any exploration of the law can be embarked, a few important points have to be made. Foremost is the observation that the principal act, the Information and Communications Act Cap 411A of 1998, remains in force. What was recently assented to was the Statue Law (miscellaneous amendment) Act of 2015 which bore provisions affecting the principal act. This was the latest in a raft of changes that have been occasioned upon the 1998 law. Before the Statute Law (Miscellaneous Amendment) Act was the Information and Communications (Amendment) Act of 2009 with subsequent changes being the Information and Communications (Amendment) Act of 2013.
The Good
What the Statute Law did was to realign terminologies under the principal Act to fit the bill of the Constitution of Kenya 2010 and the 2013 Act. Most importantly however, the Statute Law Act gave the Communications Authority new powers to develop standards, administer content and regulate as well as monitor compliance standards in the media industry. It also elevated the market dominance threshold to 50 per cent of the total market share from the 25 per cent that had been the basis of the dominance principle under the principal act. The 25 per cent threshold was seen to be a self defeating regulation since at 25 per cent of market share for individual products, virtually all the large players in the voice, money transfer and data services sectors would have found themselves declared dominant.
The new law also sought to harmonise regulations as contradicting laws under the previous regime had made it difficult for the Communications Authority to monitor and curb dominance. The new amendments aligned the provisions of the principal act as regards dominance to those of the Competitions Act. The key benefactor of this harmonisation has been the Communications Authority which has acquired fresh muscle to monitor dominance. Prior to these amendments, both the Communications Authority and the Competitions Authority had claimed jurisdiction over monitoring and regulation of dominance based on the conflicting provisions of their informing statutes. Proponents also argue that the introduction of new rules to govern SIM registration is also massive step forward considering that we live in the “age of terrorism”. The only problem with this step forward, however, is the failure of the act to offer proper monitoring guidelines to support enforcement.
In extension, the new amendments also introduced new ramifications for entities in continuous breach of dominance regulations. Under the new laws, a licensee acting in breach will be required to pay a fine not exceeding 10 per cent of its gross turnover of the preceding year. This amount is to be paid for each year that the breach persists. This is an improvement from the one-off fine contemplated previously that proved ineffective in curtailing anti-competitive behaviour. The amendments have also given the Communications Authority new powers to offer any other lawful remedy for breach. As long as this power is not abused, the authority will enjoy the right to apply remedies depending on the situation. According to the proponents, this presents a welcome change from the previous regime of rigid application of norms.
Miscellaneous amendments
That the new laws came courtesy of a miscellaneous amendment however leaves a bitter taste in the mouth. The nature of a Statute Law is that it is used to correct any anomalies within the principal law or a bill intended for Presidential assent. The aforementioned anomalies are normally minor changes which do not affect the gist of the bill. They include, but are not limited to, outdated terminologies, minor amendments or other minor errors and, as such, do not require public input. This process of amendment, whilst well intentioned, has been thoroughly abused of late with core amendments that would otherwise require the input of the public and other relevant stakeholders being introduced without such participation. The dominance threshold is such an example which buttresses the aggrieved telecoms’ complaints and indeed, the rest of the players.
Unconstitutionality
Critics argue that the new laws warrant unnecessary interference by the Government. I couldn’t agree more. Section 7 of the Information and Communications (amendment) Act of 2013 grants mammoth powers to the Cabinet Secretary and indeed the President with regard to the appointment of the chairperson and members of the Regulatory Authority Board, and is perfect testimony of this intrusion. Section 7 contemplates a Selection Committee whose purpose shall be to interview persons who shall sit on the Management Board of the Communications Authority.
This Selection Committee shall, upon the conduct of such interview, nominate three persons from amongst whom the chairperson of the board shall be picked by either the President or the relevant CS. Such discretion is extended to the selection of the members of the committee to the board with two persons being nominated in relation to each vacancy for the latter case. Such unfettering discretion allows the President or the CS (as the situation may allow) to not only pick a lesser qualified candidate but worse, to pick a government friendly candidate.
It shouldn’t escape notice that the members of the aforementioned Select Committee are as picked by the President or the CS as Section 6B (1) (b) of the 2013 act informs. The creation of the Communications and Multimedia Appeals Tribunal per section 102 of the 2013 act also falls prey to these extended presidential and ministerial powers.
Stunningly, Section 102 also introduces new powers on the accord of the CS to, through notice, reject nominees forwarded to him by the Selection Panel for purposes of appointment to the tribunal. In lieu of any rejection, subsection 11 demands a repeat of the entire selection process but with “necessary modifications” that can only be carried out by the CS. The CS is also allowed to extend the selection period by a period not exceeding a further 14 days.
The powers of the CS and/or the President according to Section 102 above may be dismissed as non-powers really. Make no mistake however; the structuring of Section 102 allows the President or his CS power over the entire regime of dispute resolution under the principal act. While this section contemplates dispute resolution by the Media Council or a relevant body set up for such purposes by the Communications Authority, Parts A and B of the section go beyond the expected appellate jurisdiction of the Appeals Tribunal to grant it original jurisdiction to hear disputes at the instance of the complaining party, the media council or the body existing for dispute resolution under the Communications Authority.
The nature of the grievances outlined under Section 102 (A) (1) mean that the tribunal comfortably assumes all dispute resolution functions relating to media enterprises at the expense of the other, more independent bodies, created for such purposes. This is the body that CS/President has control over!
Section 5C also allows the CS to issue policy guidelines of a general nature to the Communications Authority regarding the provisions of the Act. Such regulations become an official ministerial directive and therefore binding upon the authority once they are published in the Gazette as subsection 2 directs. What is “guidelines of a general nature” remains a subject of wide interpretation. Equally curious is the extent of the application of these powers – they are applied originally, solely and at the discretion of the CS to affect ANY provision of the Act! What would happen if a “creative” CS were to get “creative” in the application of this section?
In a commendably subtle manner, the Statute Law (miscellaneous amendment) Act of 2015 further extends the CS’s unfettered discretion over the entire regime of electronic transactions. The Statute Law Act amends section 83V to allow the CS, in consultation with the Communications Authority, to make any regulations under Part VI (a) of the principal act. It may be argued otherwise, but it remains the position of this article that the placement CS before Communications Authority by the Statute Law Act (which effectively transferred such power to make regulations from the Communications Authority to the CS) wasn’t an accident. Similarly so, while it may be argued that the amendment contemplated the participation of the Communications Authority, such participation is reduced to consultation at the instance of the CS. The nature of insight gained from such consultation is that it is non binding. Considered carefully this unfolds before him (the CS) the never ending world of mobile banking, data transfer, software use and mobile money transfer! Again, heaven forbid a “creative” CS bent on equally “creative” application of this section.
All the deficiencies of the information and telecoms law as it is after the amendments betray two things. Foremost is the extensive limitation of the powers of the Communications Authority in the application of the new laws. Second, is the breach of a very fundamental dictate of the Constitution of Kenya 2010 – the need for non-interference. Non-interference, indeed independence, of the media is buttressed by the Constitution under Article 34, and also under section 5A (1) of the principal act. Section 5A is clear that: “The authority shall be independent and free of control by government, political or commercial interests in the exercise of its powers and in the performance of its functions.”
With the nature and extent of interference plainly hidden within the principal act as it now is, and the obviousness of say, Safaricom’s clout, the thought of mala fides is never far from the minds of those who see it, and rightly so.
In a show of further defiance, while Article 118 of the Constitution provides for openness and consultation among stakeholders in the legislative process and other business of Parliament, many a stake holder have come out to say that they were not consulted prior to the making of the amendments – understandably so considering the nature of miscellaneous amendments. Among those on record as having expressed their reservations as regards the new laws are CA Director-General Francis Wangusi, industry lobbyists Telecommunications Service Providers Association (TESPOK), major telcos, the Attorney-General and former Information CS, who curiously aver that the amendments did not originate from them! Mr Wangusi has also sensationally claimed that the new proposals were at variance with the ones earlier submitted by the Ministry of ICT for inclusion in the bill.
Glaring ambiguity
The “CS and/or President” phrase is also quite intentional. The appointment provisions of the principal act as amended by the 2013 Act contemplate shared powers between the President and the CS. To this extent, the 2013 Act remains, at worst, wholesomely unclear or, at best, ambiguous. Section 7 (9) contemplates appointment by either the President or the CS. In regard to the same appointments, the subsequent subsection 10 contemplates appointment by the president and the CS. So, who actually is the appointing authority? To add to this ambiguity, the law contemplates resignation of any persons appointed under the act through a letter to the CS, which would make him the appointing authority. On the other hand, with regard to complaints, such complaints are made to the CS then forwarded to the President for a final decision. This may be interpreted as placing the President as the appointing authority. Such details may be considered minor until we encounter a CS and President who do not read from the same script.
Competition and market dominance
One of the worst crimes of the principal act after the latest amendments – primarily the 2013 Act – is that it has failed to define anti-competitive behaviour. That dominant firms are open to regulation without necessarily abusing their dominance is an even greater letd-own of the Statute Amendment. The regulations with regard to anti-competition also remain unclear, as is the punishment. In the same trajectory, Section 3A of the principal act which had made it difficult to punish those abusing dominance was deleted – a move that seemingly targets Safaricom (her recent defiance in her then successful effort to fight of dominance claims that had been imputed on her by the rest of the telecoms, led by Airtel Kenya, are not forgotten).
Implications
This move to redefine dominance, compounded by massive government interference as highlighted above, when considered against the failure to define anti competitive behaviour, the necessary punishments thereof and most callously, the invoking of regulatory measures upon a firm at the dawn of its dominance without necessarily breaching such dominance can only mean one thing – that Kenya has effectively moved from being a free market economy to a government-regulated one!
Regulated markets are not exactly a hotbed for foreign investment. This is the reason why large foreign companies prefer setting up in jurisdictions where markets are solely regulated by the forces of demand and supply such as the US as opposed to protectionist or deregulated regimes such as China – just ask Jack Ma of the e- commerce franchise Ali Baba.
Death sentence
On attaining market dominance, companies will be required to form subsidiaries if they reserve the desire to continue growing. Subsidiaries, however, increase operational costs (if only in the short term) whilst also increasing the levels of bureaucracy that come with running large parent companies. The latter may not present an exactly attractive phenomenon to foreign companies willing to invest within or to the already large dominant franchises. Not only so; the definition of market dominance to mean dominance as regards market share means that even the subsidiaries which are very successful will be required to continuously break up so as to be in line with the statute regulations. The formation of subsidiaries also bears the net effect of disenfranchising established entities off their right to their brand. In other words, it may be difficult to convince an investor that M-Pesa belongs to Safaricom, or Equitel to Equity Bank! As brands take time to create, and as they form the backbone of a business entity, the subsidiary directive does not, again, present such an attractive prospect for established entities.
Whilst government regulation may protect smaller entities, start ups or domestic entities against being overrun by larger foreign firms, such a regulation also has the net effect of depriving the consumers of the luxury of choice, variety and cheaper prices. Even more importantly, this (government regulation) can only be effective in jurisdictions that enjoy high domestic production and have a large nationalist (loyal) market such as China and a host of other western jurisdictions. For struggling economies such as ours, which depend on foreign capital and foreign investment, regulations such as those forming the basis of amendments to the Information and Communication Act 1998 could actually mean a very slow process of growth at best and a death sentence at worst. That such foreign multinationals remain sceptical about a market regulated by suspect rules cannot be over emphasised.
Best practice
The new amendments fall way short international best practice when it comes to regulation of telecoms dominance. The court in “USA v. Microsoft civil action no 98-1232 (TPJ)” was commendably eloquent when it stated that in order to put in place an effective remedy, it is necessary first to identify the anti competitive behaviour and the competitive detriments that would result from regulation. Any remedy that the regulatory authority comes up with should address the identified competitive harm arising from the proposed transaction. Our own law remains silent on both ends.
The Competition Authority of Botswana listed the following as guiding principles in the assessment of dominance (they are clearly informed by the International Competition Network regulations and the obiter dicta in “USA v. Microsoft”):
First, the definition of the relevant market should be made with emphasis on identifying other players in the market with regard to production and supply. Second, investigation of past and current conduct of the dominant and other players in the concerned market should be made with the view of identifying conduct, business practices and strategies that could meet the abuse of dominance test of lessening competition and substantially preventing entry and competition in future.
Third, assessment of current and future entry conditions in the relevant market to determine whether entry is likely to be timely and sufficient to discipline the pricing, product quality and other business decisions of the dominant supplier. Fourth, it must be determined whether a maverick producer or the emergence of a competitive fringe will discipline the dominant firms in the years ahead. Fifth, independence of the regulator from the government and other players in the market must be guaranteed. Sixth, there must exist a clear mandate of the regulator. Lastly, collaboration between the competitions authority and the communications authority must be ensured.
The International Competitions Network (under the Unilateral Conduct Workbook chapter, “Assessment of Dominance presented at the 10th Annual ICN Conference” has remained sceptical about adopting a definition of dominance that focuses on the market share as our laws do. According to Section 11:
“Such a definition may not be sufficiently flexible to take into account relevant features of the market, such as easy entry or intense rivalry based on rapid technological developments that suggest a firm may not be able to exercise market power durably despite a high market share”
As per Section 11 of the ICN regulations, “…dominance is not the only element in a unilateral conduct case, and analysing conduct and assessing dominance should therefore not be two totally separated steps in the analysis of a unilateral conduct case… Evidence used to assess dominance should inform the analysis of conduct and its anticompetitive effects, and vice versa.”
The arguments elucidated in the previous paragraphs betray a clear sidestep of these and other guidelines. To this extent thus, the Information and Communications Act of 1998, as amended, remains a starkly self defeating law.
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